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Google Antitrust Action Was Properly Dismissed on Improper Venue Grounds

Friday, August 5, 2011
Rebecca L. Tsai | Bloomberg Law TradeComet.com LLC v. Google, Inc., No. 10-911, 2011 BL 193864 (2d Cir. July 26, 2011) Google, Inc., maintains AdWords, an advertising platform used by companies that want their ads to appear on Google's search result pages. To create an AdWords account, the user must accept certain terms and conditions, which provide, in relevant part, that all claims "arising out of or relating to this Agreement or the Google Program(s) shall be litigated exclusively in the federal or state courts of Santa Clara County, California." Believing that Google was engaging in anticompetitive conduct, TradeComet.com LLC, which held multiple AdWords accounts, filed an antitrust suit against Google in the U.S. District Court for the Southern District of New York. Google moved to dismiss for lack of subject matter jurisdiction and improper venue under Federal Rules of Civil Procedure 12(b)(1) and (3), respectively, and the district court granted the motion. TradeComet appealed, arguing that rather than dismissing the case under Rule 12(b), the district court should have converted the motion to dismiss to a motion to transfer under 28 U.S.C. § 1404(a) since the forum selection clause named an alternative federal forum. District Court Not Required to Convert Google's Rule 12(b) Motion to a Motion to Transfer The U.S. Court of Appeals for the Second Circuit explained that a Rule 12(b) motion to dismiss based on a forum selection clause is governed by M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10 (1972), which held that forum selection clauses "are prima facie valid and should be enforced unless enforcement is shown by the resisting party to be 'unreasonable' under the circumstances." Discounting TradeComet's argument that Bremen applied only where a forum selection clause specifies a foreign forum, the Court noted that it had previously applied Bremen to affirm a dismissal on the basis of improper venue where a forum selection clause specified an alternate federal forum. The Court also rejected TradeComet's alternate argument, that Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22 (1988), required application of 28 U.S.C. § 1404(a). The Court distinguished Stewart, commenting that the immediate issue in that case was whether the dismissal of a Section 1404(a) motion was erroneous, unlike the instant case, which involved a Rule 12(b) motion. The Court concluded that the district court had not erred by refusing to convert Google's Rule 12(b) motion to a Section 1404 motion. District Court Properly Evaluated Google's Rule 12(b)(3) Motion In a contemporaneous order, the Second Circuit reviewed the district court's assessment of Google's motion to dismiss, considering the following factors de novo: (1) whether the forum selection clause was reasonably communicated to the opposing party; (2) whether the clause's language is mandatory; and (3) whether the clause applies to the claims and the parties. If these elements are met, then the clause is presumptively enforceable. The opposing party may rebut his presumption by showing that enforcement of the clause would be unreasonable or unjust. — Evidentiary Hearing TradeComet argued that the district court should not have dismissed the case without holding an evidentiary hearing as to whether Google had properly communicated the terms and conditions for the AdWord accounts. The Second Circuit found, however, that TradeComet had forfeited this argument when it failed to request an evidentiary hearing. Moreover, TradeComet had not contested Google's explanation before the district court that TradeComet, through its umbrella account, had consented to the terms and conditions, including the forum selection clause, on behalf of all of its AdWord accounts. — Retroactive Application TradeComet next argued that the forum selection clause should not apply retroactively to Google's alleged anticompetitive behavior, which predated that particular version of the agreement. Given the dearth of cases discussing this issue, the Court relied on cases concerning the retroactivity of arbitration clauses. As it noted, arbitration clauses are generally not enforced where the underlying conduct "occur[ed] prior to the effective date of the agreement, and where the clause is limited to claims under 'this Agreement.'" Where the underlying conduct began before the effective date of the agreement and the arbitration clause is "not limited to claims arising under the agreement itself," however, the arbitration clauses are applied retroactively. (Quoting In re Verisign, Inc. Derivative Litig., 531 F. Supp. 2d 1173, 1224 (N.D. Cal. 2007).) Here, the forum selection clause applied not only to claims arising from the agreement itself but also to claims relating to Google Programs, defined elsewhere in the agreement to include AdWord. The district court's retroactive application of the forum selection clause was therefore proper. — Unreasonableness Lastly, TradeComet contended that the forum selection clause was unreasonable because it was overreaching and against public policy. In particular, it challenged Google's ability to modify the terms of the agreement without liability. The Court determined, however, that Google's modifications to the forum selection clause were not unreasonable, since every iteration of the clause indicated that litigation must be brought in Santa Clara County. TradeComet's argument that the clause was "contrary to public policy favoring enforcement of antitrust laws by private parties" also failed, as it contradicted decisions by both the Second Circuit and the U.S. Supreme Court. Concluding that dismissal for improper venue was proper, the Second Circuit affirmed the lower court's judgment. Disclaimer This document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. 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